Globalization and Nike, Inc.
The athletic footwear industry has experienced significant growth over the last two decades. Since 2001, consumers in the United States have spent more than $13 billion and have purchased over 300 million pair of athletic shoes. While the industry is highly segmented by sport category, models and price, a few large players dominate the branded shoe segment. The top ten-footwear companies control over 70 percent of the market share for global athletic footwear. Nike has displaced Adidas and Reebok to become the largest and most important athletic shoe company in the world (Locke & Siteman, 2002). Global Competition
Nike has evolved from being a distributor of Japanese running shoes in the United States to becoming the world leader in the design, distribution, and marketing of athletic footwear. Nike grows its business by investing in the design, development, marketing and sales, and then contracts with other companies to supply the labor and raw materials needed to manufacture their products (Locke et.al., 2002). Demand, Supply, and Outsourcing
By outsourcing shoe production to low-cost producers, Nike can price their footwear products more competitively in order to gain market share and increase profits. Nike has worked with suppliers to open manufacturing plants in low cost countries like Indonesia, China and Vietnam. Nike guarantees these suppliers a significant number of orders and places company employees at these facilities to monitor product quality and the production (Corporate Responsibility Report, 2009). Over the years, Nike has broadened its product range and has moved into other sectors such as apparel and sports equipment. The company has expanded sales into countries such as Australia and New Zealand, China, Japan, SE Asia and Russia. Today, Nike’s products are made by amore than 600 contract factories that employ more than 800,000 workers in 46 countries around the world (Corporate Responsibility Report, 2009). In 2009, Nike contracted with 618 factories to manufacture its footwear, apparel and equipment product lines. Of these, 71 factories are producing shoes, 391 are producing apparel, and 156 factories are producing equipment. Important differences exist among Nike’s product sectors and the factories that manufacture these products. While Nike is primarily known for its footwear, only 71 out of its 618 suppliers are producing shoes. Most of these suppliers are located in Asia. In contrast, Nike apparel is manufactured in 391 factories located throughout the world. These differences are due both to the rules governing international trade in the two industries and to the underlying nature of these industries. Footwear factories are usually large, costly facilities. By contrast, garment factories are usually smaller, easier to set-up, and extremely labor-intensive (Corporate Responsibility Report, 2009). Trade Restrictions
While footwear quotas were eliminated in the late 1980s, trade in apparel is still subject to quotas. Under the Multi-fiber Agreement or MFA, a large portion of textiles and clothing exported from developing countries to industrial countries are subject to quotas under a special regime. In 1995, the World Trade Organization (WTO) Agreement in Textiles and Clothing, recommended that quotas for apparel produced by suppliers in WTO member states should come to an end. Currently, neither Vietnam nor Cambodia are WTO members, which means that quotas will remain in effect after 2005 (The Agreement on Textiles and Clothing, 2012). Relationships with Suppliers
Industry differences have an impact on the type of relationship that Nike can develop with its suppliers. In footwear, Nike has been able to develop long-term relationships with several large firms. Nike designers create and relay new footwear designs to these suppliers who then develop prototypes. Once the prototypes are approved, product specifications are sent to...
References: Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill.
Corporate responsibility report. (2009). Retrieved from Nike, Inc. at http://www.nikebiz.com/crreport/content/workers-and-factories/3-2-1-profile-of-factories.php?cat=profiles.
Locke, R.M., & Siteman, A.J. (2002) The promise and perils of globalization. Retrieved on May 27, 2012 at http://mitsloan.mit.edu/50th/pdf/nikepaper.pdf.
The agreement on textiles and clothing. (2012). Retrieved on May 27, 2012 from the World Trade Organization at http://www.wto.org/english/tratop_e/texti_e/texintro_e.htm.
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